India has Double Tax Avoidance Agreements (DTAAs) with more than 95 countries, which can help reduce TDS on payments made to foreign entities. The process for claiming these treaty benefits involves four key steps, including obtaining a Tax Residency Certificate (TRC), submitting Form 10F, establishing beneficial ownership, and addressing situations where the foreign entity does not cooperate.
India’s DTAAs with 95+ countries allow businesses and individuals to potentially reduce withholding tax on cross-border payments such as dividends, interest, royalties, and fees for technical services. Instead of the domestic withholding rate, which is generally around 20–40%, an eligible taxpayer may benefit from a lower treaty rate of approximately 5–15%. However, these treaty benefits are not available automatically. Specific requirements and procedures must be followed to claim them.
What is a DTAA and Why Does it Matter?
A DTAA is an agreement between two countries intended to prevent the same income from being taxed twice—once in the country where the income arises and again in the country where the recipient is a resident.
For cross-border business payments, one of the main benefits of a DTAA is that the lower withholding tax rate provided under the relevant treaty can apply instead of the higher domestic rate, provided the recipient satisfies the required conditions.
For example, the domestic Indian withholding tax rate on royalties paid to a foreign entity is 20%. Under the India-Singapore DTAA, the rate is reduced to 10%. Therefore, if a company pays USD 500,000 in annual royalties to a Singapore-based entity, the reduced rate can result in withholding tax savings of USD 50,000 each year.
Step 1 — Confirm Treaty Eligibility
The recipient must be a tax resident of the treaty country: Simply being incorporated in Singapore does not establish eligibility. The entity must qualify as a tax resident of Singapore, meaning it is managed and controlled there, pays taxes in Singapore, and can establish its tax residency before the Indian tax authorities.
The income must be covered under the treaty: DTAAs contain specific articles covering different categories of income. Royalties, Fees for Technical Services (FTS), dividends, interest, and capital gains are generally addressed under specific provisions. The applicable article should be identified according to the nature of the payment.
The entity must be the beneficial owner: The recipient must be the genuine beneficial owner of the income rather than a conduit or nominee. Since 2016, India has placed significant importance on beneficial ownership analysis, particularly in structures involving Mauritius and Singapore.
Step 2 — Obtain a Tax Residency Certificate (TRC)
What is a TRC? A Tax Residency Certificate is issued by the tax authority of the foreign country and confirms that the entity is a tax resident of that country for the relevant year.
Who obtains it? The foreign recipient of the income, whether an individual or a non-resident entity, must obtain the TRC from the tax authority in their country of residence.
Validity: TRCs are generally specific to a particular year. A TRC issued for 2025 does not automatically remain valid for 2026, so it should be renewed annually.
How to obtain it: The process depends on the country. For example:
- UK: HMRC Certificate of Residence
- USA: IRS Form 6166
- Singapore: IRAS Certificate of Residence, which can be applied for online and is issued within 2–4 weeks
- UAE: Federal Tax Authority Residence Certificate
Step 3 — Submit Form 10F
Form 10F is an Indian tax requirement introduced under Section 90(5) of the Income Tax Act. It is a self-declaration submitted by the non-resident entity to provide additional information required under Indian law, including:
- Status of the non-resident, such as a company, individual, or trust
- Country of incorporation or birth
- Tax identification number in the treaty country
- Period covered by the TRC
- Address in the treaty country during the relevant period
How to file: Form 10F must be submitted electronically through the Indian Income Tax e-filing portal (incometax.gov.in) by the non-resident. The filing is generally completed using a PAN obtained in India. The PAN requirement for Form 10F has created practical difficulties; however, where a PAN is not available in India, the form can still be filed by mentioning PANNOTAVBL.
Step 4 — Beneficial Ownership Declaration
In addition to the TRC and Form 10F, the Indian withholding agent or payer should obtain a self-declaration from the non-resident confirming the following:
- The non-resident is the actual beneficial owner of the income and is not holding it on behalf of another entity.
- The arrangement has not been created primarily for the purpose of obtaining treaty benefits.
- The non-resident has genuine economic substance in the treaty country.
There is no specific prescribed form for this declaration. However, obtaining it is important for the withholding agent’s risk management. If the declaration is subsequently found to be incorrect, the withholding agent may be considered to be in default.
Step 5 — Apply the Treaty Rate and Deduct TDS Accordingly
Once all required documents are available: TDS should be deducted at the applicable treaty rate. For example, royalties under the India-Singapore DTAA may be subject to a 10% rate instead of the domestic rate of 20%.
File Form 27Q: Form 27Q is the quarterly TDS return applicable to payments made to non-residents. The return should include details of the treaty rate applied and the DTAA relied upon.
Maintain the supporting documents: Keep the TRC, Form 10F, beneficial ownership declaration, and relevant underlying contracts on record for six years. The Income Tax Department may examine these documents for these years at a later stage.
GAAR — The Override Risk
India’s General Anti-Avoidance Rule (GAAR) under Sections 95–102 has been applicable from 1 April 2017. It can override treaty benefits where the primary purpose of an arrangement is to obtain a tax benefit and the arrangement lacks commercial substance.
GAAR can be particularly relevant in situations involving:
- Singapore or Mauritius holding companies that have no meaningful local substance.
- Round-trip financing arrangements where funds are transferred out of India and subsequently return as foreign investment.
- Treaty shopping, where an entity is established in a treaty country mainly to obtain access to lower withholding tax rates.
GAAR does not apply when the treaty benefit results from genuine commercial transactions. The key safeguard is demonstrating substance, such as having employees in the treaty country, making business decisions locally, and conducting genuine business activities there.